As the conflict between the US, Israel, and Iran intensifies, UK consumers are already feeling the pinch in several key areas of their finances. From soaring petrol prices to rising mortgage rates, the uncertainty surrounding this geopolitical tension could have significant implications for everyday expenses. The extent of these impacts largely hinges on the conflict’s duration and the resilience of global supply chains.
Fuel Prices on the Rise
Motorists across the UK are beginning to notice a marked increase in fuel costs. As of last Friday, the average price for petrol climbed to 150.11 pence per litre—an increase of 17.3 pence since the onset of hostilities. Diesel has seen an even steeper rise, jumping 35.3 pence to reach 177.68 pence per litre, according to the RAC. This surge in costs has ignited tensions between petrol retailers and the government, with businesses accusing officials of using inflammatory rhetoric regarding alleged profiteering.
Industry analysts suggest that for every $10 increase in oil prices, UK pump prices could rise by approximately 7 pence per litre. While motoring organisations have assured drivers that fuel supplies remain plentiful, they urge consumers to limit non-essential travel and adopt more fuel-efficient driving habits, such as gentle acceleration and braking.
For those who do not drive, the rise in fuel costs could still result in higher prices for goods and services, particularly food, as transport expenses for supermarkets increase.
Mortgage Rates Under Pressure
Prior to the outbreak of the conflict, there was optimism regarding a gradual decline in interest rates for fixed-rate mortgages. However, lenders have swiftly reversed this trend, raising rates in response to increased funding costs and diminished expectations for a reduction in the base borrowing rate.
Currently, the average two-year fixed mortgage rate has surged from 4.83% in early March to 5.75%, marking its highest level since the previous year. Similarly, the average rate for five-year fixed mortgages has climbed from 4.95% to 5.69%, the highest since July 2024. In times of economic uncertainty, lenders frequently withdraw mortgage products from the market, leading to fewer options for borrowers. According to Moneyfacts, there are now 1,620 fewer residential mortgage products available, although over 6,000 options remain.
Adam French, head of consumer finance at Moneyfacts, noted that when lenders pull products rather than merely adjusting prices, it often indicates a significant shift in funding costs that necessitates more drastic measures.
Energy Bills and Heating Oil Costs
In the realm of household energy, there is a degree of protection for gas and electricity bills due to the price cap set by Ofgem in England, Wales, and Scotland. However, this cap is temporary and does not apply universally. The maximum price for energy units covered by the cap is set to remain until July, with prices expected to drop in April.
Nonetheless, the trajectory of wholesale energy prices in the coming months will significantly influence household bills from summer onward. A sustained period of high wholesale prices could lead to sharp increases in energy costs for millions. Forecasts from energy consultancy Cornwall Insight suggest that a typical dual-fuel household could see annual bills rise to £1,934 by the next price cap period, up from the current £1,641.
For those using heating oil—commonly found in rural areas and Northern Ireland—there is currently no cap, leading to immediate price pressures. To assist the most vulnerable users, Prime Minister Sir Keir Starmer has announced a £53 million support package that will be allocated through devolved authorities.
The Broader Economic Picture
At the beginning of March, UK inflation was projected to align closely with the Bank of England’s target of 2% over the next five years. However, the current conflict has thrown those estimates into disarray, with analysts now forecasting a rise in inflation rates. While it is unlikely that inflation will reach the peak of 11.1% seen in October 2022, the ongoing instability complicates economic predictions.
The Bank of England’s primary tool for managing inflation is interest rate adjustments. After maintaining the Bank rate at 3.75% in February, the consensus among analysts is that the next move may be an increase, rather than a decrease. This shift could make borrowing more expensive while potentially offering slightly better returns for savers.
Additionally, the cost of leisure activities may also be impacted as global tensions affect travel expenses. The price of jet fuel has surged, prompting airlines to reconsider their pricing strategies, which may lead to higher fares or reduced flight availability during peak holiday seasons.
Why it Matters
The unfolding conflict in Iran is not just a distant geopolitical issue; it has tangible consequences for UK households. As costs rise across various sectors—from fuel and mortgages to energy bills—families may find their budgets increasingly stretched. Understanding these dynamics is crucial for consumers striving to navigate a challenging economic landscape, making informed decisions about spending, saving, and future financial plans.
